The ongoing conflict between the United States and Iran is likely to be prolonged and difficult to resolve, according to Dr. Anita Kellogg, assistant professor at the National Defense University in Washington, DC. In a recent episode of Zero Sum, Kellogg discussed the multifaceted nature of the confrontation, which extends beyond military engagements into economic statecraft, energy security, and global supply chains.
Economic Power vs. Military Perception
Kellogg dismissed the notion that the US is losing its status as the world's leading economic power, asserting that "the US is definitely still the most formidable economic force in the globe." However, she highlighted a critical distinction between economic strength and the perception of military capability. The prolonged nature of the Iran conflict, she argued, could erode confidence in America's ability to execute military campaigns efficiently, especially when objectives are limited and progress is slower than anticipated.
This perception matters beyond the Middle East. Any doubts about US military effectiveness are closely tied to the more consequential strategic question of how Washington would respond to a potential conflict involving China and Taiwan. The Iran situation serves as a test case for US resolve and capability.
Iran's Use of Economic Statecraft
One of the most striking themes of the discussion was Iran's deliberate use of economic pressure to compensate for its military vulnerabilities. Kellogg noted that Tehran has "wisely been able to incorporate economic statecraft," with the Strait of Hormuz serving as a particularly powerful lever. The strait's importance extends far beyond the US; any sustained disruption threatens energy flows and raises transportation and fuel costs for economies dependent on Middle Eastern crude.
For investors, oil remains one of the clearest channels through which the conflict can spread into the global economy. Oil prices have already swung violently, and Kellogg expects continued volatility. She expressed skepticism about a substantial resolution within the next 30 days, stating, "I think this conflict is going to be very difficult to end, and I'm not sure the US has a plan for that."
China's Strategic Advantage
While Washington remains focused on Iran, Beijing is observing the limits of US military capacity and exploiting areas where it holds economic leverage. Kellogg said the conflict is "definitely strategically good for China," particularly because it highlights the difficulty of replacing weapons systems and sustaining prolonged military operations.
China also retains significant leverage through its control over critical minerals. According to Kellogg, China processes around 90% of the critical minerals used in defense systems, semiconductor production, electrical infrastructure, and other advanced technologies. This dependence could become increasingly important as the US and China compete over artificial intelligence and advanced computing.
Rare Earths and Semiconductors in US-China Negotiations
The anticipated Trump-Xi summit next month could therefore be about much more than tariffs. Kellogg expects Washington to seek some relaxation of Chinese restrictions on critical minerals, while Beijing is likely to push for relief from US semiconductor export controls. The strategic tension is clear: the US remains ahead in advanced AI, but China controls key inputs required for defense and high-technology production.
American semiconductor companies have strong commercial incentives to regain access to the Chinese market. This creates an unusual convergence between corporate interests and geopolitics, with companies such as Nvidia potentially having a significant stake in the outcome of diplomatic negotiations. Chip stocks have already been affected by the conflict's impact on supply chains.
Investor Implications
The conversation ultimately returned to a problem increasingly familiar to investors: traditional market signals can be overwhelmed by geopolitical shocks. Kellogg cautioned that oil prices could remain volatile and urged investors to be careful around semiconductor companies given mixed results and lingering concerns over an AI bubble.
Her own market outlook was cautiously constructive on the possibility of reduced Chinese restrictions on rare earths, bearish on the prospect of a quick resolution to the Iran conflict, and focused on defense companies as a wildcard as governments seek to replenish weapons stocks. US equities have reached record highs despite the conflict, but the underlying risks remain.
For investors, the bigger lesson may be that geopolitics is no longer a separate risk sitting outside the portfolio. Energy chokepoints, critical minerals, semiconductor supply chains, and military spending are increasingly becoming part of the same investment equation. European earnings have shown resilience, but the full-year outlook remains clouded by the conflict.
This article is for informational purposes only and does not constitute financial advice.
